Kim Jong-un may have turned around the North Korean economy. But do the numbers mask deeper troubles?

[A STUDY OF KIM JONG-UN 11]

Feb. 28, 2019, is a day North Korean leader Kim Jong-un will never forget. It is the date of the "no deal Hanoi summit," in which U.S. President Donald Trump walked out of negotiations in Vietnam, an insult the North Korean leader had never experienced before. Could Kim himself have ever imagined that, just over six years later, he would stand shoulder to shoulder with the leaders of China and Russia at the viewing gallery of Tiananmen Square in Beijing in September last year?

Kim’s elevated strategic status is a reality. He is no longer in a hurry. Even if Trump sends another overture, his new position would be to casually ignore it. How did the young leader of Northeast Asia’s poorest nation, once treated merely as a joke, reach his current position? What choices did Kim make to overcome the failure of the Hanoi summit, and how has North Korea changed as a result of those choices? How has this change altered South Korea’s security environment? We must now deal with a Kim of a different caliber. That is why we must study him now. - Ed.

North Korea's economy appears to have regained momentum, with official data from South Korea's Ministry of Data and Statistics indicating GDP growth of more than 3 percent in both 2023 and 2024. Strengthening economic ties with Russia and the revival of trade with China have helped alleviate some of the pressures stemming from prolonged border closures and international sanctions.

Beneath those headline numbers, however, warning signs continue to emerge.

The value of the North Korean won has nosedived, food prices have surged and economists increasingly point to excessive money creation and foreign currency shortages as evidence of deeper structural problems.

The growing gap between reported economic growth and conditions in local markets has raised questions about whether North Korean leader Kim Jong-un's long-standing goal of pursuing nuclear development and economic growth simultaneously can remain sustainable.

The North Korean leadership, however, has projected confidence in the policy's success.

"The people's belief that 'we may not have candy, but we must have bullets' has now transformed into the confidence that we can create both candy and bullets if we set our minds to it," said Ri Il-hwan, secretary for propaganda and agitation of the Central Committee of the North's ruling Workers' Party, while proposing the reappointment of Kim as general secretary of the Workers' Party on Feb. 22.

His remarks reflected growing confidence within the leadership that Kim's signature policy of pursuing nuclear development and economic growth simultaneously is starting to work.

Recent figures appear to support that narrative.

North Korea's real GDP growth reached the 3 percent range for a second consecutive year, recording 3.1 percent in 2023 and 3.7 percent in 2024, according to South Korea's Ministry of Data and Statistics.

Growth vs. reality

A closer look at the economy, however, paints a more complicated picture.

Since Kim took power in 2011, North Korea's exchange rate has remained near 8,000 won per dollar for much of the period.

On April 10, however, the exchange rate reached 63,000 won per dollar, according to Asiapress International, a Japan-based media outlet specializing in North Korea. The figure marked an increase of about 168 percent from 23,500 won on April 11 last year.

Economists say such a sharp increase remains unusual even within North Korea's highly controlled economic system. Inflation has accelerated as well.

Rice prices, one of the clearest indicators of consumer purchasing power in North Korea, traded between 5,400 won and 6,800 won per kilogram in 2023. Prices rose to between 12,100 won and 26,500 won during the second half of last year. On April 10, the price reached 27,500 won per kilogram.

Intelligence sources say Kim recently summoned economic officials and sharply criticized them over the exchange rate. He reportedly blamed the problem on people deliberately pushing prices up, rather than on wider economic conditions.

Kim has shown a similar misunderstanding of how exchange rates work before.

He executed a prominent money changer in Pyongyang after a sharp swing in the exchange rate, according to a report that South Korea's spy agency, the National Intelligence Service, submitted to the country's parliament in November 2020.

Inflation's real cause

Many economists argue that North Korea's inflation and currency depreciation stem from more conventional causes.

Analysts long debated the cause of rising prices and exchange-rate volatility, but many now point to excessive issuance of North Korean currency as the main driver. They increasingly link this trend to Kim’s decision to raise workers' wages and living allowances.

Outside observers cannot easily assess economic conditions inside North Korea using indicators alone. Yet understanding those conditions remains crucial, as it directly affects when and how the international community can engage with the country.

Interviews with Kim Byung-yeon, distinguished professor of economics at Seoul National University, Lim Eul-chul, professor at the Institute for Far Eastern Studies at Kyungnam University, and Choi Ji-young, research fellow at the Korea Institute for National Unification, lend support to the view that excessive money creation by North Korea, rather than shortages of goods, has driven the won's depreciation and the resulting high exchange rate. North Korea does not appear to be facing an absolute shortage of food or other goods on the market.

North Korea produced 4.9 million tons of food crops last year, up 120,000 tons, or 2.5 percent, from 2024, based on estimates released by the Rural Development Administration in December last year. The figure remains close to the 5 million-ton level that many experts regard as the minimum requirement for food self-sufficiency.

Russia continues to provide economic assistance, including flour, following the rapid expansion of bilateral ties. China also supplies materials needed for Kim's "Regional Development 20×10 Policy"— a plan to modernize and industrialize 20 counties each year over a decade — and major housing construction projects in Pyongyang.

Analysts have therefore turned their attention to wages.

Wage shock

Beginning in late 2023, North Korea increased wages at state-owned enterprises by roughly 10 to 20 times. Monthly salaries, which averaged about 3,000 won, rose to between 30,000 and 50,000 won, depending on occupation.

The increases reflected Kim's emphasis on improving living standards under his "people-first" governing philosophy. Yet many residents found daily life becoming more difficult.

Economists believe authorities may have expanded the money supply to finance higher wages, construction projects and defense spending. Under that scenario, rising inflation and currency depreciation would represent a predictable outcome.

"The authorities appear to have financed a significant portion of the wage increases through currency issuance, although several hypotheses remain under discussion," Kim Byung-yeon said. "The effects of the expanding money supply are now beginning to show up in prices and exchange rates.”

Running short of dollars

The disappearance of foreign currency from markets has added further pressure.

Money changers known as dondekko have largely disappeared from local markets as authorities intensified crackdowns on foreign-currency transactions, according to Daily NK.

At the same time, traders seeking to pay for imports from China rushed to acquire dollars and Chinese yuan as trade volumes increased and the government accelerated industrial modernization and construction projects.

Demand for foreign currency rose while authorities restricted supply. Economists say those conditions almost inevitably pushed exchange rates higher.

The situation highlights a broader challenge for Kim's economic strategy.

North Korea has sought to stimulate economic activity through higher wages and increased state spending while tightening controls over external economic activity and foreign-currency transactions. Critics argue that the two objectives increasingly work at odds with each other.

"North Korea appears to have used much of its foreign currency to import materials for Kim's 'Regional Development 20×10 Policy' and major construction projects such as the Hwasong District development in Pyongyang," Lim said. "As a result, less foreign currency has been available in the markets, putting upward pressure on the exchange rate.

"As the government has brought more trade under a Cabinet-led system, exchange rates have become more market-driven. Meanwhile, growing informal trade and smuggling have increased demand for foreign currency, pushing the exchange rate higher.”

Whether North Korea can sustain growth despite those pressures remains an open question.

The key question is why Russian President Vladimir Putin, who has become one of Kim’s most important backers, has not done more to ease the pressure on North Korea’s economy.

In theory, Russia remains North Korea’s only significant source of currency. If Moscow provided sufficient foreign currency, Pyongyang could exchange it for North Korean won, helping stabilize both the exchange rate and inflation.

Two potential explanations stand out. Russia may not be providing enough hard currency to make a difference. Alternatively, the North Korean government might be absorbing all the foreign currency it receives without allowing it to circulate in the broader economy.

Kim’s frustration with structural economic problems, such as exchange rates and inflation, also suggests he may not fully understand the economic forces behind them.

To support higher wages, an economy generally needs either income and investment from outside sources or a reduction in the money supply. North Korea, instead, has expanded the money supply while tightening control over external economic activity.

Experts acknowledge that recent turmoil in the Middle East has contributed to higher prices and exchange-rate pressures. They argue, however, that deeper structural problems within North Korea’s economy play a larger role.

Wage increases also create a lasting burden because the government must continue paying them every year, allowing the effects to accumulate over time.

"North Korea has experienced persistent inflation since the second half of 2023," Choi said. "The value of the North Korean currency has fallen, and prices have risen as a result."

At first glance, Kim may appear closer than ever to achieving the parallel development of nuclear weapons and the economy that he pursued during the early years of his rule. Yet the outlook could deteriorate quickly if the country's underlying economic problems continue to build.

"The nuclear and missile sectors continue to advance, but North Korea’s ability to manage economic problems remains extremely weak," Kim Byung-yeon said. "The economy has shown signs of growth recently, but it remains underdeveloped. Continued policy failures could add to instability over time."

Others take a more optimistic view. They argue that North Korea has secured a new source of growth through expanded cooperation with Russia and that close ties between the two countries will likely continue for the foreseeable future.

"North Korea resumed trade, but the resulting increase in its trade deficit worsened foreign-currency conditions and pushed the exchange rate sharply higher,” Choi said. “This is not unique to North Korea and commonly occurs in countries under sanctions. At the same time, North Korea has strengthened cooperation with Russia and recently expanded cooperation with China. If the North continues to broaden its external economic ties, the economy will likely sustain its recovery rather than return to the difficulties it faced during the Covid-19 period."

The road not taken

To understand how North Korea arrived at this point, it is necessary to revisit the moment when Kim's diplomatic opening ended abruptly.

After the second U.S.-North Korea summit in Hanoi, Vietnam, ended without an agreement in February 2019, Kim made a clear choice. Dialogue with Seoul and Washington stopped, and North Korea returned to confrontation and isolation.

Many analysts view the moment as the beginning of Kim's "dark turn."

One question remains: Was a "Hanoi deal" ever possible? If it was, could Kim have taken a different path?

The JoongAng Ilbo asked Korea experts in Washington for their views. Their answers differed. Some said both sides entered the talks without a realistic backup plan, making failure almost inevitable. Others said the two countries came close to a breakthrough but missed a rare opportunity.

Why Hanoi failed

Those who view Hanoi as an unavoidable failure point to the same problem. Both sides entered the summit believing the other would eventually give ground.

Victor Cha, president of the Geopolitics and Foreign Policy Department and Korea Chair at the Center for Strategic and International Studies, said the messages conveyed by the South Korean government to Washington and Pyongyang led both North Korea and the United States to believe the other side would eventually buckle under pressure and make concessions, so they entered the negotiating table with that expectation.

Evans Revere, a former principal deputy assistant secretary of state for East Asian and Pacific Affairs, offered an equally blunt assessment.

He argued that the Hanoi summit had no real chance of convincing North Korea to give up what it sees as the only guarantee of regime survival: nuclear weapons.

Structural problems also constrained the negotiations.

Kim Hyok-chol, North Korea's chief working-level negotiator at the time, reportedly responded to major issues by saying that Kim Jong-un would make the final decisions. Many analysts also question whether Stephen Biegun, then the U.S. special representative for North Korea, had full authority to negotiate on behalf of Washington.

The outcome likely thus depended heavily on U.S. President Donald Trump's judgment during the summit itself.

Others argue that Hanoi represented a missed opportunity.

Joel Wit, a distinguished fellow at the Stimson Center, said the summit offered far greater potential than many people realized.

He said the Hanoi summit had the potential to produce a much more significant breakthrough than many observers realized at the time.

A draft agreement of roughly 10 pages reportedly included provisions covering diplomatic relations and the launch of peace treaty discussions. Wit argued that the two remaining issues — denuclearization and sanctions relief — also remained within reach of compromise.

Kim's turning point

Regardless of the reasons for its collapse, the Hanoi summit marked a painful setback for Kim, unlike any he had experienced before.

The disappointment likely felt even greater because the Singapore summit had produced unexpectedly favorable results for North Korea.

The Singapore summit refers to the first U.S.–North Korea summit, held in Singapore in 2018, where Trump and Kim met and signed a joint statement committing to work toward the denuclearization of the Korean Peninsula.

"Kim may have become somewhat complacent after the Singapore summit produced an agreement that worked largely in North Korea's favor," a South Korean government source said.

Kim boarded his train for the long trip back to Pyongyang after publicly promising results to his people, only to return empty-handed. By the time he arrived home three days later, he no longer approached diplomacy in the same way.

"I think it was probably the biggest diplomatic gamble in the history of North Korea, and it failed," Cha said.

Cha added that neither the failed summit nor the Covid-19 border closure threatened Kim's grip on power.

Still, experts say Kim's policy direction changed noticeably after Hanoi.

Revere said the deterioration in inter-Korean relations and Kim’s decision to designate South Korea as a hostile state likely stemmed in part from the experience of Hanoi.

The experience may have convinced Kim that South Korea no longer served as a useful mediator or negotiating partner. After Hanoi, Kim largely stopped talking about denuclearization.

What if Hanoi had worked?

Some experts believe North Korea could look very different today if the Hanoi summit had produced an agreement.

John Everard, Britain's ambassador to North Korea from 2006 to 2008, said international aid might have resumed and the United States might have opened an embassy in Pyongyang.

He said North Korea would still have remained a dictatorship but likely would have been less tightly controlled than it is today. He added that it might even have moved toward a partial opening to the outside world, as seen during the final years of late leader Kim Jong-il’s rule.

The timing proved especially significant because North Korea sealed its borders completely in 2020 after the outbreak of Covid-19. Pyongyang later blocked most humanitarian assistance from international organizations, deepening its isolation.

Evans Revere said North Korea would likely have looked very different during its response to Covid-19 if it had maintained contact with the outside world, including the United States. He added that the North could have avoided at least some of the economic and political damage.

Trump’s continued expressions of goodwill toward Kim keep the “what if” question alive.

“Trump asked President Moon Jae-in three times during his flight home after the Hanoi no-deal summit to help facilitate communication with Kim,” a diplomatic source said. 

BY SPECIAL REPORTING TEAM [[email protected]]